Home flippers buy low to sell high. The lower the purchase price and the higher the resale price, the better your return. However, another way to boost your ROI is to leverage financing. A good Fix & Flip loan can amplify your returns by lowering how much money you need to put down in the first place, lowering the barrier to entry and helping your money go further.
At ABL, we’ve funded countless Fix & Flip loans for beginner investors. Our mission is to help your real estate business grow and succeed with fast, flexible financing you can rely on.
What Is a Fix-and-Flip Loan?
A Fix & Flip loan is a short-term loan for buying, renovating, and reselling properties. Unlike traditional mortgages, it’s designed for real estate investors. In fact, most conventional banks won’t finance a fix and flip because they’re bound by stricter lending regulations. However, private lenders like ABL carefully vet projects and only lend on projects with high return potential. Plus, we offer flexible loan terms and fast closings to ensure you can get started quickly.
Pros and Cons of Fix-and-Flip Loans
Of course, getting a Fix & Flip loan has its pros and cons. Here are some benefits and potential downsides to consider:
Pros of Fix-and-Flip Loans
- More property selection: With a Fix & Flip loan, you have a larger purchase budget, giving you access to properties within a wider price range.
- Higher return potential: If the loan interest rate is lower than the deals’ ROI, financing could boost your return on the cash you invested.
- Scale your portfolio faster: With less cash tied up in a single property, you can move on to your next flip and scale your portfolio faster.
- Tax benefits: Sometimes, you can deduct mortgage interest from your taxable income, which helps you keep more of your profits.
Cons of Fix-and-Flip Loans
- Financing costs: Lenders charge interest and other fees. However, ABL offers a zero-point program with no pre-payment penalties.
- Risk of overleveraging: If the flip doesn’t go as planned, you’ll still owe money on the loan. However, ABL vets each deal to minimize this risk.
Fix-and-Flip Loans for Beginners: How to Get Started
Getting a Fix & Flip loan is relatively easy. If it’s your first time, follow these steps:
1. Organize Deal Details
Lenders need to know what they’re financing, so gather all the information you have about the property, proposed renovation, budget, construction timeline, and contractors you plan to use. This will streamline the underwriting process.
2. Research Lenders
Look for lenders that specialize in Fix & Flip loans, earn positive reviews, and have experience working with beginners. At ABL, we’ve funded countless flips for first-time investors who often remain life-long partners. But don’t take our word for it. Check out our 500+ 5-star reviews.
3. Pre-Qualify
Pre-qualifying for a Fix & Flip loan gives you an estimate of how much you can borrow. It typically requires providing a lender with basic deal details like the property address, purchase price, renovation budget, and estimated after-repair value (ARV).
4. Compare Loan Offers
After pre-qualifying for a Fix & Flip loan with a few lenders, compare their offers. Carefully review the quoted interest rates, fees, and other loan terms to determine the best deal. You should also look for a lender who can be flexible if your project timeline shifts.
5. Apply and Close
Lastly, submit a full loan application to your lender of choice. You’ll likely need to include the property purchase agreement, title history, proof of property insurance, and other paperwork. Once you close on the loan, you can collect the loan funds according to a draw schedule.
Tips for Getting Your First Fix-and-Flip Loan
While getting a Fix & Flip loan can be easy, here are ways to boost your odds of getting one with favorable terms:
Build a Strong Network
Before you need a Fix & Flip loan, start connecting with lenders and building a reliable team of contractors, agents, and other real estate professionals. That way, when you come across a good deal, you’ll know who to contact, and you can hit the ground running.
Find Solid Deals
Fix-and-flip lenders care most about the property itself and its return potential. To avoid wasting your and their time, make sure the deal pencils out before you apply for a Fix & Flip loan. Ideally, you can buy the property at below-market value, your rehab budget is based on actual quotes, and the after-repair value (ARV) is substantially more than the purchase price.
Have Some Skin in the Game
Most lenders don’t offer 100% Fix & Flip financing. Instead, they require you to make a down payment so you have some skin in the game. At ABL, we’ll finance up to 85% of the property purchase and 100% of the rehab costs. To avoid delays, start saving for a down payment now.
Fix-and-Flip Loans for Beginners: Common Mistakes to Avoid
Finally, beginners should avoid these common pitfalls when getting a Fix & Flip loan:
Underestimating Costs and Timelines
If you underestimate rehab or holding costs, it could inflate your expected returns. Similarly, if you underestimate how long it will take to renovate, you could fail to finish on time. Both scenarios can be detrimental to the deal for you and the lender.
Lacking a Clear Exit Strategy
What is your exit strategy once the rehab is done? Will you list the property on the market or refinance to hold the property as a rental? Without a detailed plan, lenders may hesitate to approve your loan. A clear strategy reassures them that you’ll repay on time.
Choose the Right Lender
The lender you choose can make or break a deal. For example, some lenders have little experience in financing Fix & Flips, are slow to disburse funds, or don’t offer any flexibility on loan terms. This can make it harder to pull off a successful flip.
ABL works with investors of all experience levels, including first-time flippers. Our competitive rates, flexible terms, and fast closings make us an ideal lending partner for all of your real estate funding needs. Pre-qualify for a Fix & Flip loan today!